In an action brought by the Indiana Attorney General against a Florida-based foreclosure defense law firm and its owner-officer, the Supreme Court of Indiana recently held that none of the defendants were expressly or impliedly exempt from liability under four Indiana state consumer protection statutes.

A copy of the opinion in Consumer Attorney Services, PA v. State, Ind is available at: Link to Opinion.

A foreclosure defense law firm incorporated in Florida and its owner-officer subcontracted with at least five Indiana attorneys to provide local services through “of Counsel,” “associate,” and/or “Partnership” agreements with the law firm — prior to the law firm’s registration as a foreign entity authorized to conduct business within the state.

Upon receipt of complaints from Indiana consumers, the Office of the Indiana Attorney General investigated the law firm, and found that: (i) the Indiana consumers maintained no contact with their local Indiana-based attorneys following retention; (ii) no borrowers obtained a successful loan modification, and; (iii) all of the conduct occurred prior to the law firm’s registration with the Indiana Secretary of State.

The law firm defendants moved for summary judgment in the trial court, arguing that they were statutorily exempted from liability. After the trial court denied the motion, it certified its order for interlocutory appeal to the Indiana Court of Appeals.

The Appellate Court affirmed in part, reversed in part, and remanded, finding that the law firm was exempt from liability under everything but a portion of the DCSA claim, while its owner-officer was not exempt under any of the four statutes. Consumer Attorney Servs., P.A. v. State, 53 N.E.3d 599, 612 (Ind. Ct. App. 2016), reh’g denied. The State petitioned to transfer and vacate the appellate court’s ruling, and the Indiana Supreme Court granted cert.

The Indiana Supreme Court first addressed the defendants’ argument that they were exempt front the CSOA, which mandates that “credit services organizations” provide potential customers with certain written disclosures, obtain appropriate surety bonding, and refrain from engaging in “deceptive acts,” including imposition of charges before services are rendered. Ind. Code §§ 24-5-15-2 through -8.

Citing precedent under a similar Kansas consumer protection statute, the law firm defendants argued that they were both exempt from the CSOA because the statute expressly excludes liability for any “person admitted to the practice of law in Indiana if the person is acting within the course and scope of the person’s practice as an attorney,” Ind. Code § 24-5-15-2(b)(6), and defines “person” as “an individual, a corporation, a partnership, a joint venture, or any other entity.” Ind. Code § 24-5-15-4.

Conceding that the statutes are ambiguous when read together, and that the exemption should reach exempted Indiana attorneys’ firms in general, the State argued that a genuine issue of material fact remained as to whether the law firm defendant was the “bona fide law firm of the Indiana attorneys,” and as to whether it was registered to conduct business in Indiana during the pertinent facts of this case. State’s Br. at 22.

In a matter of first impression, the Indiana Supreme Court agreed that the CSOA’s language is facially ambiguous, and tuned to its canons of statutory construction, concluding that the statute should be constructed liberally in favor of those invoking its protections—i.e., “protecting [its] vulnerable [citizens] from further financial depletion by predators.”

Under the CSOA, the term “person” is part of the definition of a “credit services organization,” Ind. Code § 24-5-15-2(a), applies to those who violate the CSOA, Ind. Code § 24-5-15-11, but also to those damaged by a credit services organization, Ind. Code § 24-5-15-9.

Reading the statute as a whole, the Indiana Supreme Court concluded that the General Assembly’s expansive definition of “person” in Indiana Code section 24-5-15-4 was not intended to apply to every usage of that word in the CSOA, but rather read in context for each usage, with only the practicable definitions applying. As such, it concluded that only the individual Indiana lawyers were intended to be exempted under Indiana Code section 24-5-15-2(b) of the CSOA.

Next, the Supreme Court interpreted a similar exemption contained in the MRPFA, which serves to prevent a “foreclosure consultant” from engaging in the acts prohibited under the CSOA, and also, among other things, from gaining any personal interest in real property that is the subject of the client’s foreclosure or from gaining power of attorney over the homeowner. Ind. Code § 24-5.5-5-2.

The relevant exemption under the MRPFA is more limited in scope, applying to “[a]n attorney licensed to practice law in Indiana who is representing a mortgagor.” Ind. Code § 24-5.5-1-1(6). Because “attorney” is not defined under the statute, the Supreme Court read the term under its plain, ordinary and usual meaning, to read that it unambiguously exempts attorneys as individuals, but not the law firms with which they are affiliated, because only an individual can be “licensed to practice law in Indiana.” See Ind. Admis. Disc. R. 17 Sec. 1.

The Indiana Supreme Court rejected the defendants’ argument that supporting a CSOA law firm exemption would “uphold[] the authority of the Indiana Supreme Court to discipline attorneys [and] regulate the practice of law,” reasoning that the State’s General Assembly would choose to exempt attorneys specifically (who are subject to far more extensive disciplinary action by this Court), while not exempting their firms under the State Admission and Disciplinary Rules.

Accordingly, the Indiana Supreme Court held that under the CSOA exemption in Indiana Code section 24-5-15-2(b)(6) a “person” must be both “admitted to the practice of law in Indiana” and “acting within the course and scope of the person’s practice as an attorney.” Therefore, “although a law firm may qualify as a ‘person’ with respect to other provisions of the CSOA, it does not qualify for an exemption under Indiana Code section 24-5-15-2(b)(6).”

Finally, the Court examined the defendant law firm’s argument that it is exempt from liability under: (i) the HLPA, which prohibits “deceptive act[s] in connection with a mortgage transaction or a real estate transaction,” Ind. Code § 24-9-3-7(c)(3), and further defines “deceptive act” to include MRPFA violations, Ind. Code § 24-9-2-7(a)(2), and; (ii) the DCSA, which bars an “unfair, abusive, or deceptive act, omission, or practice in connection with a consumer transaction,” Ind. Code § 24-5-0.5-3(a), but expands the definition of “deceptive act” to specifically include CSOA and MRPFA violations, Ind. Code §§ 24-5-0.5-3(b)(28), (35).

Neither the HLPA nor DCSA contain express attorney exemptions. However, the defendant law firm argued that the underlying violation of the HLPA and DCSA falls within the scope of the MRPFA and CSOA, thus triggering exemption under those statutes.

However, because the Indiana Supreme Court failed to find any law firm exemption under either of those statutes, it held that no exemption extends to these ancillary claims. Further, because the law firm’s owner-officer was never licensed as an attorney in the State of Indiana, the Court held the individual lawyer could not claim exemptions contained in the CSOA or MRPFA, nor extend them to the HLPA and DCSA.

Accordingly, the denial of the motion for summary judgment filed by the defendant law firm and its owner-officer was affirmed.

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Christopher P. Hahn practices in Maurice Wutscher’s Commercial Litigation, Consumer Credit Litigation and Insurance Recovery and Advisory groups. Prior to joining Maurice Wutscher LLP, he served under the General Counsel at the Florida Office of Financial Regulation. He also obtained extensive experience litigating property insurance claims through all phases of discovery, motion practice and other pre-trial activities. Christopher obtained his Bachelor of Science degree in Business Administration from the University of Southern California, followed by his Juris Doctorate degree from the University of Miami School of Law. He is also a graduate of the University of Miami’s Masters of Business Administration program, completing his degree with an emphasis on finance and mergers and acquisitions.